Technological change is the most critical issue in business. The internet, mobile phones, and computers have changed the way we work and live our lives. This blog post will discuss the impact of technological change on business for you to understand more about it.
Two-way information flows
In the industrial economy, companies controlled all the information about their products. The producers decided what to make and how much to charge for it. Customers didn’t have a choice as they were not aware of alternatives. Now, with technological change, every customer is a producer through peer-to-peer sharing of information over social media. Customers now have easy access to substitutes from around the world, which means that companies now face competition from everywhere in the world rather than locally as before.
With two-way information flows, customers can compare themselves against other customers, which has led to a shift towards “transparency” – both around quality and price, leading to greater competition between competitors.
Rise of mass collaboration
Open-source software and collaborative online communities like Wikipedia have demonstrated the power of mass collaboration. The internet has lowered the barriers to entry and allowed small companies and individuals to compete on a more equal footing with big companies. Collaboration means that companies need workers who are more skilled, flexible, and educated than ever before.
The rapid pace of technological change
The rapid pace of technological change makes it difficult for employees to keep up with the latest developments in their field. This affects knowledge workers’ productivity as they need time to learn new skills quickly, reducing their wages.
More tangibly, firms would replace older machines/equipment with newer ones over time, leading to a gradual increase in capital intensity resulting in a fall in labor’s share due to deflationary pressure from technology replacing labor.
Falling costs of communication and coordination
The internet has made it easier for businesses to communicate and coordinate activities at a distance with partners, suppliers, and outsourced workers from around the world. The short-run cost of searching for information across the globe has fallen massively, letting buyers do more comparison shopping. We see increased geographical specialization with cheaper communication due to a rise in comparative advantage, especially among countries/regions with different resource endowments or factor endowments.
However, it has resulted in various social and political pressures such as outsourcing, offshoring resulting in deflationary pressure on local wages which can lead to dissatisfaction by natives who feel threatened by immigrants. This can end up further leading to negative effects such as an increase in xenophobic nationalism, etc.